The Next Big Thing You Missed: A Silicon Valley VC Firm That Dares to Invest in Diversity

Jennifer Fonstad and Theresia Gouw believe there’s money to be made in bringing diversity to Silicon Valley. That’s why they left their respective venture capital firms last month to start Aspect Ventures, a fund that aims not only to invest in early-stage mobile startups but to infuse these fledgling companies with some added gender and cultural diversity.

In a Silicon Valley dominated by white males, Fonstad and Gouw are in uncharted territory. But they’re seeing positive results much sooner than expected. They were prepared to run Aspect for a good two years with their own money and no outside funding. But over the past few weeks, they’ve received so much interest from other investors, they may bump up that timetable. “We’ve had quite a lot of interest from the limited partner community,” Fonstad says.

The firm is a long way from the finished article. At the moment, Fonstad and Gouw don’t even have an office. They’re operating out of various Silicon Valley coffee shops. But they hope to be part a larger push for greater diversity inside American tech companies. As Facebook chief operating officer Sheryl Sandberg and an army of like-minded souls work to change the role of women on the business side of things, others are striving to advance the role of women and minorities within the predominately male Silicon Valley engineering culture.

Fonstad and Gouw argue that companies actually perform better if they have more women executives and board members, citing studies from two independent research houses. A study from Dow Jonesshows that, over a 14-year period, the typical successful startup had 7.1 percent female executives versus 3.1 percent for unsuccessful startups, and research firm Catalyst says that Fortune 500 companies with the highest ratio of female directors outperformed those with the lowest such ratio by 53 percent on average.

The two women aren’t trying to change the world overnight. They want to grow their new firm slowly, or at least slowly enough for their investing philosophy to take root. Aspect Ventures believes that startups benefit from hands-on investors who can shape operations from the ground up, providing not only advice but also a network of advisers and potential hires to navigate the rocky and ever-changing path from zero revenue to tens of millions of dollars in annual sales.

Fonstad and Gouw argue that companies actually perform better if they have more women executives and board members, citing studies from two independent research houses.

This philosophy borrows from the “nurturing approach” of Union Square Ventures, the well-regarded New York investment shop founded by Fred Wilson and Brad Burnham. Like Union Square, Aspect will focus on early-stage investments, meaning investments ranging from around $200,000 in a “seed-stage” company that is only just getting off the ground to roughly $3 million in a company that has reached its so-called “series A” funding round. After first investing in a company, they may participate in later funding rounds as well, but the primary aim is to very directly help small companies find their feet.

But Aspect is different from Union Square in that it focuses on mobile companies — and it strives for added diversity. The fund will help expose its portfolio companies not only to people with experience in myriad industries and professions, but to women and others with cultural backgrounds that are underrepresented in Silicon Valley. Fonstad and Gouw believe this is a vital addition.

Photo: Talia Herman/WIRED

Fonstad tells the story of an all-male engineering team she was personally familiar with. The team was developing some sort of hardware device, and after assembling a prototype, they felt they had nailed the thing. But then they showed it to a newly hired female engineer. When she started playing with the device, her longer nails rendered it impossible to use, and the team ended up completely redoing the user interface. With a diverse range of people around the table, Gouw says, “you’re going to get a more 360-degree view on the business.”

“These companies are creating technologies that didn’t exist before — business models that didn’t exist before — and going after whole new markets,” says Gouw. “They’re dealing with complicated decisions and strategies that have no prior art.” The only way to be successful is to bring a wide range of experiences to bear on the problem at hand.

Luckily, Gouw adds, the tech world is starting to embrace gender and cultural diversity in much bigger ways. In her long career in tech — she was at Accel Partners for 15 years and, before that, spent two years at a Valley software company — Gouw has seen a sea change in how women are received. Early on, she felt excluded from certain networking opportunities because she was a woman, and she would use a secret code on her calendar to conceal when she was going to a women’s networking event. Then came Sheryl Sandberg’s book Lean In, and word that the Facebook COO had been conducting all-female salons at her house. Suddenly, Accel partners were asking Gouw to target specific women when she attended female networking events. Her participation in women’s gatherings was now seen as an asset, and she stopped using secret codes on her calendar. “It was literally a 180,” she says.

Fonstad, who spent close to 17 years at the venture capital firm Draper Fisher Jurvetson, adds that there is still a lot of work to be done. A lamentably small percentage of venture capitalists are women — just 4.2 percent among the largest firms, according to one recent report. And the most recent census by the National Venture Capital Association found the ratio of women investors in VC actually declined, to 11 percent in 2011 from 14 percent in 2008. “In our industry,” Fonstad says, “the numbers speak for themselves.” But Aspect wants to change those numbers. And more.